Why this fuss about FDI?

For the last two months, every political party has been going apoplectic about how FDI in retail.

I am writing this on Thursday, a day before the Rajya Sabha votes on FDI in multi-brand retail, and my point is that whichever the vote goes (or rather, went, because by the time you read this, the tally will be out), it doesn't make any difference to our lives at all. I am sorry if this sounds dumb, but I have always had a fundamental question about FDI in retail. Which is: What's the big fuss all about?

For the last two months, every political party has been going apoplectic about how FDI in multi-brand retail is either the stairway to heaven or the one-way street to hell. If the UPA is to be believed, this is just the magic potion the country needs. Farmers will earn more, consumers will pay less. Middlemen will be eliminated, wastage will be history, and the nation will outgreen the Green Revolution. If the Opposition's logic is correct, farmers will be driven to destitution, all grocers will starve to death, and massive white-skinned monopolies will suck consumers dry.

As a result, half the winter session of Parliament saw no business being done, a debate was held which saw more over-the-top histrionics than a Karan Johar film on the sack of Troy, and a vote was taken. And I still can't figure out what all the hullabaloo is about.

First, the government's argument. It says that 40 per cent of all our food rots on the way from farm to shop shelf because of the lack of a cold chain. Now, I have been hearing that figure - 40 per cent - for the last 20 years. What prevented any government from doing something about it? Apparently, if FDI is allowed, big multinationals will bring in technology and logistics management systems that will solve this problem. India has built supercomputers, nuclear weapons and communication satellites. And we don't have the technology to build cold chains? The Indian railways are the most complex such system on the planet, and the gigantic software engine that runs its ticketing and logistics is a complete marvel of its kind. Why do we need to learn logistics from Wal-Mart? And for all I know, half of all its programming was anyway done in India.

I am no expert by any stretch, but common sense tells me that if the 40 per cent figure has remained unchanged for at least two decades, it's not for lack of technology and poor management capabilities. To believe that all the vested interests and systemic sloth that are the true cause of that 40 per cent rot from farm to shelf will be crushed by a few multinationals is, I think, rather stupid.

I am sure they will make some difference in the long term, maybe a decade, but transform the system on their own? We might as well believe in Santa Claus.

Now let's see what the Opposition is saying. One, farmers will be driven to destitution. Now, Indian farmers are hardly a homogenous mass. Our rich farmers are certainly not the most privileged, powerful and canny lots in the country, and it is extremely unlikely that they will be fooled by a bunch of MBAs. And what about farmers with small land holdings, who are preyed upon the most by middlemen?

The simple truth is that the coming of FDI will have no effect on them in the foreseeable future. For a corporate entity, it will be costly to reach individual small farmers and buy from them. However, it is also in the corporate interest to get rid of the middleman. In time, this may happen, or it may not. But in the short to medium term, I cannot see the small farmer's economic condition being affected in any way by a Wal-Mart. However, the probability of a long-term positive impact seems much higher than a negative one. Because corporates will be able to offer better prices than a middleman and yet remain comfortably profitable through economies of scale.

Impact

And, of course, consumers will get better quality-controlled products at valuefor-money prices. But will the neighbourhood grocer shut down? Has Big Bazaar caused any shop, you know of, to down shutters? The vast retail spaces that are at the core of Wal-Mart's global business strategy are available in urban India only beyond town limits, otherwise the real estate costs will mess up all the numbers. I can't imagine hordes of Indians driving 30km or more every Sunday to buy the week's supplies. The fuel costs simply won't make sense. Even if you go once a month, how many Indians own cars big enough to carry a month's household supplies back home?

Steps

We heard the same old arguments, watched the same old hysterics when McDonald's was allowed to set-up shop, when Reliance entered retail, and most of all, when FDI was permitted in insurance? Yes, coming in of foreign insurance companies was supposed to be the first step to being colonised all over again. Well, the last time I checked, 10 years after the foreign insurers came in, good old LIC was about 11 times the size of the largest private insurer and had 70 per cent market share, both in terms of value and number of new policies issued.

But the most crucial part of the new FDI-in-retail policy is that it's up to the state governments to allow or not allow it in their states. This makes the whole hue-and-cry completely pointless. Firstly, sheer logic and empirical evidence tell me that the entry of a Wal-Mart is not going to make a significant difference in any way to incomes, expenditures, economic structures, anything. And secondly, if you are Mamata Banerjee, who believes that FDI in retail will be ruinous, just don't permit it in West Bengal. That's it. End of the matter.

So what's the big fuss all about? All this was sound and fury signifying less than. nothing.

- The writer is a senior journalist

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